Brazil probes USA Rare Earth’s $2.8B deal for Serra Verde

Brazil’s antitrust watchdog has opened an investigation into USA Rare Earth’s (Nasdaq: USAR) proposed acquisition of its only rare earth producing, posing a regulatory hurdle to America’s critical minerals plans in Latin America’s largest market.

Last month, USAR announced that it would acquire Serra Verde Group, operator of the Pela Ema rare earth mine and associated processing facility in Goiás state, for $2.8 billion. Included in the deal was a 15-year US offtake agreement tied to Pela Ema’s production of four rare earth elements: neodymium, praseodymium, dysprosium and terbium, used in high-performance magnets.

On Monday, the Administrative Council for Economic Defense said it has initiated proceedings to review the transaction, including the offtake agreement. The agency, also known as Cade, is responsible for evaluating business combinations and finding potential competition issues. Should an issue be identified, it has the authority to implement mitigation measures or operational restrictions.

In this case, Cade will look to assess whether the USAR-Serra Verde combination constitutes a “concentration act” under Brazilian competition law. If so, it will determine whether the parties were required to notify the transaction or whether it should request a submission for antitrust analysis.

However, the agency stressed that the proceeding “does not necessarily mean that the acts must be notified or that there are competition issues.” In the end, the General Superintendence “may decide to close the case, to allow the transaction to be completed, or to open an administrative proceeding,” it said.

USAR did not comment on the proceedings. Shares of the Oklahoma-based company fell 5% as of midday, in line with drops with others in the sector. Its market capitalization is approximately $5.5 billion.

Brazil’s only rare earth mine

The proceeding comes amid efforts by the US government to seal a critical minerals pact with Brazil, host to the second-largest volume of rare earth reserves in the world behind only China. Despite having been in talks as early as January, the parties have yet to finalize an agreement. So far, the US only has a memorandum of understanding at the regional level with the state of Goiás, focused on investments in Serra Verde.

Earlier this year, the Brazilian company closed a $565 million funding package with the United States’ International Development Finance Corporation (DFC), which will be used for operational upgrades for Pela Ema.

The rare earth mine, which began commercial production only two years ago, is among the few operations capable of mass producing heavy rare earths outside China. According to Serra Verde, it is expected to account for half of the world’s ex-China production by next year.